Since 2003, Latin America's economies have been thriving, with GDP, including estimates for last year, up by 17 percent -- an average annual growth rate of 4.3 percent and a 12 percent increase in per capita GDP. While impressive, this is only the second time in 25 years that Latin America has experienced four consecutive years of positive economic growth. Will such good times continue?
This recent growth has been fueled by a strong boom in commodity prices, including not only energy inputs such as oil, gas and coal, but also metals, minerals and agricultural products. Growing demand for raw materials, owing to sharply increased industrial growth in Asia, particularly China and India, has benefited the terms of trade of many Latin American countries, and this is not expected to end anytime soon.
Historically, fiscal profligacy tends to take hold at times like these, with windfall revenues wasted on extravagant public projects. But not this time -- at least not so far. In Latin America's seven principal economies (Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela), which together account for almost 90 percent of regional GDP, annual economic growth averaged 6 percent in the third quarter of last year, while industrial output was up by 8 percent. But these governments seem to be taking advantage of the bonanza to pay off pending external debt and to increase their foreign reserves.
Remarkably, responsible macroeconomic policy has followed a wave of populist/socialist electoral victories in recent years. Brazil, Chile, Ecuador, Nicaragua and Venezuela elected socialist or populist/reformist presidential candidates last year, while Bolivia elected a populist indigenous president in 2005, Uruguay a socialist president the same year and Argentina a leftist-centrist president in 2003.
An increased degree of international financial independence is among the consequences of the raw materials bonanza. Countries such as Brazil and Argentina paid off their loans to the IMF ahead of time, while others are buying up their own debt in secondary markets. Increased liquidity in international capital markets also reduced the need to obtain multilateral financing, and with it the need to accept conditions like privatization of natural resources and deregulation of public utilities.
For the most part, however, fiscal and monetary policies have so far not followed the leaders' rhetorical promises of deep structural reforms and redistribution to favor the indigenous and the poor. Even so, the danger of fiscal deficits and inflation persists in several countries. As a result, the new generation of leaders cannot introduce drastic structural reforms, badly needed in several countries, in a way that jeopardizes macroeconomic stability -- without which none of their promises can be fulfilled.
In fact, whereas economic growth in Latin America is often perceived as being very unequal -- which explains the shift to the left -- recent UN data puts the region in first place among all developing-country areas. Not only is the region's economic performance strong, but so is its score on the Human Development Index (HDI), which includes social indicators such as education and health. Indeed, while Latin America's GDP per capita is lower than the world average, it surpasses all other developing regions, as well as the world average, in the main social indicators.
Only one Latin American country -- Haiti -- appears in the group of low HDI countries, while the rest are in the medium and high HDI groups. Of the 30 Latin American countries included in this year's report, only one-third have lower HDI rankings than GDP rankings, and only a few -- those with the region's greatest need for significant improvements in social infrastructure, particularly provision of health and education -- show large discrepancies.
But two risks to Latin America's economic recovery loom large. First, with the current raw materials bonanza driving up prices of exported goods, the region is increasingly vulnerable to the so-called "Dutch disease," whereby higher wages and prices spread throughout the economy, weakening competitiveness, particularly in industrial markets. With Asian manufacturing exporters penetrating markets worldwide, such a development would be highly damaging to Latin America's growth prospects.
Second, at a time when economic globalization is rendering national borders porous, political leaders may get carried away by their rhetoric of independence. All bonanzas end. If no adequate provisions are made to sustain global competitiveness, the economic, social and political consequences could be dire.
Simon Teitel is research fellow at the International Center for Economic Research in Torino, Italy, and former senior economic and research adviser at Inter-American Development Bank. Copyright: Project Syndicate
Two sets of economic data released last week by the Directorate-General of Budget, Accounting and Statistics (DGBAS) have drawn mixed reactions from the public: One on the nation’s economic performance in the first quarter of the year and the other on Taiwan’s household wealth distribution in 2021. GDP growth for the first quarter was faster than expected, at 6.51 percent year-on-year, an acceleration from the previous quarter’s 4.93 percent and higher than the agency’s February estimate of 5.92 percent. It was also the highest growth since the second quarter of 2021, when the economy expanded 8.07 percent, DGBAS data showed. The growth
In the intricate ballet of geopolitics, names signify more than mere identification: They embody history, culture and sovereignty. The recent decision by China to refer to Arunachal Pradesh as “Tsang Nan” or South Tibet, and to rename Tibet as “Xizang,” is a strategic move that extends beyond cartography into the realm of diplomatic signaling. This op-ed explores the implications of these actions and India’s potential response. Names are potent symbols in international relations, encapsulating the essence of a nation’s stance on territorial disputes. China’s choice to rename regions within Indian territory is not merely a linguistic exercise, but a symbolic assertion
More than seven months into the armed conflict in Gaza, the International Court of Justice ordered Israel to take “immediate and effective measures” to protect Palestinians in Gaza from the risk of genocide following a case brought by South Africa regarding Israel’s breaches of the 1948 Genocide Convention. The international community, including Amnesty International, called for an immediate ceasefire by all parties to prevent further loss of civilian lives and to ensure access to life-saving aid. Several protests have been organized around the world, including at the University of California Los Angeles (UCLA) and many other universities in the US.
In the 2022 book Danger Zone: The Coming Conflict with China, academics Hal Brands and Michael Beckley warned, against conventional wisdom, that it was not a rising China that the US and its allies had to fear, but a declining China. This is because “peaking powers” — nations at the peak of their relative power and staring over the precipice of decline — are particularly dangerous, as they might believe they only have a narrow window of opportunity to grab what they can before decline sets in, they said. The tailwinds that propelled China’s spectacular economic rise over the past